When you file for Chapter 7 bankruptcy in New York, your lenders may try to reclaim any assets that you posted as collateral for a loan. However, Section 722 of the U.S. Bankruptcy Code allows you to keep this property by “redeeming” it, meaning that you pay the remaining debt balance or the current replacement value of the property, whichever is less.

What is secured property?

As its name suggests, secured property is anything that you acquired by financing or posting collateral. Examples include:

  • Cars
  • Jewelry
  • Furniture
  • Computer equipment

When you purchase these types of items on credit, the security agreement states that the lender can take it back if you default, sell it, and use the proceeds to pay off the loan. This can also put you in a position of personal liability: if the sale price doesn’t cover the amount you owe, you are still responsible for paying the deficiency.

When you fill out your Chapter 7 forms, you must indicate to the bankruptcy court and the creditor what you intend to do with each piece of secured property. Options include:

  • Keep it if you are current in your monthly payments and can continue to pay it off. If you choose this option but aren’t current on your payment plan, you will likely lose the property unless the lender consents to negotiate a new agreement.
  • Surrender it to the lender and have the debt be wiped out by your Chapter 7 case.
  • Redeem it by paying its value in a single payment. If you and the creditor can’t agree on a fair value for the property, the court will schedule a hearing to decide on a figure. Once you pay that lump sum or the balance of the debt, you own the property, and it cannot be seized.

Conditions for redeeming property

If you want to redeem secured property in a Chapter 7 bankruptcy, you must meet the conditions below.

  • The debt involved consumer goods intended for personal or household use. This does not include property that secures a business debt.
  • It is personal property. This does not include real estate.
  • The property is tangible, meaning that it can be seen and touched. Intangible assets like investments and intellectual property are not included.
  • The property is either protected by a bankruptcy exemption, or your trustee has concluded that it has no value in your case.

Should you redeem secured property?

Redemption has its advantages and disadvantages. It can be a good idea if the debt on the property is higher than its value because you only have to pay the value. The primary drawback is that you have to pay the entire amount in a lump sum payment. If you don’t have the cash handy, you may have to borrow from a friend or relative.

If you have questions about redeeming secured property during your Chapter 7 case, talk to your New York bankruptcy attorney, who can guide you through the process and address any creditor-related challenges. Jayson Lutzky is a Bronx personal bankruptcy lawyer offering free in-office initial consultations. While redemption is not always recommended, Mr. Lutzky can help you make the right decision for your case. Call his office at 718-514-6619 to schedule an appointment.